As the supply of computer chips and other components recovers from the disruption caused by the pandemic, more and more cars roll off the assembly lines Photo: Owen Humphreys/Pennsylvania.
Elon Musk kicked off 2023 by kicking off a price war in the electric car market by cutting Tesla's price by as much as £8,000 in the UK.
Now, old-fashioned petrol and diesel car prices could be next in line for cuts prices.
As the supply of computer chips and other parts returns to normal after disruptions caused by the pandemic, more and more vehicles are moving. from assembly lines.
The oversupply occurring at a time when people are still reeling from the cost-of-living crisis means that UBS analysts believe we could see prices fall soon.
Bank analysts believe that in the face of a slowdown of the global economy, manufacturers may end up producing more cars than they can sell, leading to an inevitable fall in prices in the second half of this year.
Though that would be a good thing. news for motorists, the government's carrot and stick efforts to force drivers to switch to electric vehicles will prove disastrous.
Family cars account for approximately 12% of UK greenhouse gas emissions and addressing this is a key part of the UK's goal of zero net income by 2050.
The government has already announced plans to ban the sale of new diesel and gasoline cars by 2050 to encourage people to switch to electric cars.
However, the market is still very price sensitive. Interest in electric vehicles jumped in early 2022, when Russia's invasion of Ukraine sent gasoline prices skyrocketing. However, it ebbed off over the course of the year as electricity prices began to rise and gasoline prices declined.
Gasoline and diesel vehicles are already inherently cheaper than electric models, and a price war in the sector, fossil-fuel-powered vehicles will affect sales of electric vehicles, says Professor Mohan Sodhi of City University's Bayes School of Business.
“And a petrol car is much more convenient, you still have a gap of £7,000, £8,000 and even £10,000 [between petrol and electric cars], and you don’t have to worry about where to charge it,” he says.
Until last year, the government provided subsidies for the purchase of electric vehicles. But today's lack of assistance and gaping price gaps mean that battery-powered cars are now harder to sell.
Aside from green certifications, the main benefit of electric vehicles has been that they are cheaper to run than gasoline for drivers with low mileage. However, the fall in gasoline prices since last year has narrowed this advantage.
0804 Cost of running a car
«The world is a bit upside down now,» says Prof. Sodhi.
< p>Direct comparison between gasoline and electric engine is difficult due to the lack of models that offer both. However, automakers produce cars of the same size.
According to Carwow, a driver who drives 8,000 miles a year in a Volkswagen Golf will pay £1,014 for gas at today's prices, plus £210 in road tax.
Covering the same mileage in a similar car A VW electric car in size The ID.3 will cost you just £191 when using your home chargers at the cheapest overnight rate.
This translates into significant savings of up to £1,033 per year.
Charge at public charging stations and the economy favors petrol cars again. The difference in upfront costs also means it takes years for the benefits to pay off.
With the Golf only £26,565 and the ID.3 starting at £39,425, the cheaper car would take 12 years. mileage offered by an electric model to pay off.
Cost per mile – home charging costs per kilowatt compared to gasoline
Heavy users will benefit faster — double the mileage and wait seven years to save — and careful drivers will also benefit from lower maintenance costs because electric vehicles have fewer moving parts.
The math gets a lot harder. more favorable when driving in London's congestion area, where EV drivers can save up to £2,700 a year.
However, for EV sales to really take off, prices need to come down. to make drivers feel cheaper,” says Professor Sodhi.
Today, the majority of the EV buyer market is made up of highly paid executives who buy or rent under a company scheme where more than a third of the price can be reduced due to tax savings.
For those without significant tax savings, an electric car is still an expensive luxury.
Price cuts for electric vehicles will come, Professor Sodhi says, as automakers move to battery-powered models and more vehicles roll off the assembly line. assembly lines.
Popular electric vehicles have plummeted in price.
Mark Raban, head of automotive dealer Lookers, doubts whether a sudden glut of cheap combustion-engine vehicles is really materializing.
He says automakers have learned from the pandemic.
Problems with the supply of spare parts led to a reduction in car production. However, this has pushed up prices and helped automakers, including Volkswagen, Mercedes and Vauxhall owner Stellantis, achieve record profits in 2021 that they may want to keep.
In addition, many automakers, in including Ford and Mercedes, are planning to switch to the so-called agency model. Instead of selling shares to a dealer, they will sell directly to drivers and use the dealer as a real estate agent. This means that overproduction and falling prices will become their problem.
“They will clog up their own balance sheets pretty quickly if they don’t get supply and demand right,” Raban says. .
Customers are asking about electric vehicles, says Mr. Raban, and about one in five customers is choosing a battery-powered model.
“This is a trend that is sure to come. I mean, car manufacturers have been ordered to make this product and bring it to market effectively,” he adds.
From next year, one in five cars sold by British manufacturers must be electric. This share will grow to 80% in 2030 and 100% in 2035.
Ultimately, the government's mandate to produce more cars will balance the market, says Ciara Cook, Research and Policy Specialist at New Automotive.
«I don't think short-term trends will easily replace it,» she says. «Manufacturers will have to shift their focus to selling more electric vehicles.»
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